Most of us are aware that the agriculture sector is one of the biggest contributors in the Indian economy. But how many of us know that MSME sector is second largest with high employment and contribution in terms of foreign exchange earnings. In order to know more about MSME. Lets first understand what defines MSME in Indian context as it differs from county to country.
WHAT IS MSME?
According to Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 , the government of India has defines micro, small and medium enterprises under two categories
1.Enterprises engaged in the manufacture or production, processing or preservation of goods
- A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
- A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore;
- A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
2. Enterprises engaged in providing or rendering of services and whose investment in equipment and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006
- A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
- A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore;
- A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
IMPORTANCE OF MSME IN INDIA
The micro, small and medium Enterprises (MSME) in India include 63.4 million units and accounts for nearly 30% of India’s GDP, employing about 460 million people. The sector also makes up for 33.4% of the India’s output in manufacturing, giving employment to around 120 million Indians, according to CII. When it comes to exports, the MSMEs contribution is estimated at about 45% of the total exports.
REASONS BEHIND LOW CONTRIBUTION
Despite such huge contribution, 99% of MSME remain micro in their life cycle. What’s the reason behind this? Well the reasons are many but to name a few, it is due to
- Lack of standardization
- Lack of efficiency
- Lack of consistency
- Low productivity
- Low rate of technology adaptation
- Unfavorable government policies
- Lack of trusted eco system
But things are changing and definitely changing for good. I have listed few positive changes recommended by government with some doable solutions.
WAYS FOR MSME TO EMERGE STRONGER
As most of the MSME runs on sole proprietorships (an unincorporated business with only one owner who pays personal income tax on profits earned), there entire focus remains on how to save their business from sinking and sustain in the market for longer time, rather than spending time to grow the ecosystem. For this it is important that financial institutions like NBFCs should help them by bringing more financial inclusions. The concept of financial inclusion encompasses all public and private initiatives to bring financial services to those households and MSMEs traditionally excluded from the formal financial sector, and furthermore, to improve and perfect the serviceability of the financial system for the players that are already part of the formal financial circuit.
MSME has always been a labor intensive this leads to poor quality products and low productivity. The study also found that digitization of MSME could expand their contribution to India’s GDP by 10 percentage points, pushing it up to 46-48%. Therefore, it is imperative that MSME attain their full potential and reach to the next level of business growth by adopting technology. Many tech companies are focusing on MSME and making them tech friendly. Large tech companies like Dell, HP, Intel, Vodafone, Idea and WhatsApp came together under the guidance of industry body Confederation of Indian Industry (CII) for project called Tech-Saksham. The project plans to reach out to over 10,000 MSMEs. The tech companies will work with MSME by assisting them with technology, resources and expertise to make sure India’s large MSME base gets digitized.
Company like google has come up with a program in partnership with FICCI called ‘Digital Unlocked’, to provide digital skills to help SMEs to connect with their customer base online, through out the country. Even Facebook has announced ‘Facebook’s VC Brand Incubator Program’ that will focus on helping MSME achieve growth in India by providing them with technology skilling and support. Cisco, one of the largest player when it comes to networking has come up with an initiative called ‘Start Portfolio’ where in, they will interact with 25 MSME everyday to help them go digital.
Introduction of ‘Make in India’ concept by our Prime Minister helped decentralizing localism by taking pride in indigenous brands, emphasizes resilience and adaptability, and encourages local craftsmanship and employability. Make in India initiative facilitate investment, foster innovation, enhance skill development, encourage employment, and build a sustainable eco-system for the MSME sector in India. This will encourage the idea of making in India for the MSME industry and help amplify their presence across sectors.
The government has come up with many schemes to help micro and small industries. The Production-Linked Incentive (PLI) scheme of the government can be beneficial for the sunrise sectors, including electronics, electrical and machinery.” Many large companies have come up to help MSME by making them work as their ancillaries. Another scheme which is also introduced by the government recently is ‘Fintech’, this is to promote digital transactions in the country, a move that the industry believes will drive adoption of e-payments in smaller cities and spur innovation by fintech firms. This will help MSME to become more sustainable and can survive in a long run.
As a proud Indian, I take immense pride in saying that we as a community are quite adaptable when it comes to change and if the change is for good nothing can stop us. Advancement in technology has always proved to be beneficial not just for riches but for people who struggle with their daily living. Therefore whether its is adapting technology or accepting policies and schemes , MSME are doing every bit to make themselves self sustainable that will help leverage our economy.
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Pic Courtesy : Kathleen Ellen / Corporatefinanceinstitute / Canva